IB Options Brief: Vale SA (VALE)
Options Trade Extends Downside Protection On Vale
VALE ñ Vale SA
The Brazilian metals and mining companyís shares have sustained sharp losses since last summer, with the stock currently trading at a 45.0% discount to the July 26th 52-week high of $33.74. Shares in Vale are in positive territory today, up 1.3% at $18.59 as of 11:00 a.m. in New York; however, the largest prints in the iron ore producerís options today point to the potential for fresh two-year lows in the next few months.
It looks like one strategist is rolling a bearish position from the front month out to the September expiry, selling a 2,592-lot Jun. $20/$23 put spread at $2.97 per contract to buy the 2,592-lot Sept. $16/$18 spread at a net premium of $0.69 each. Open interest in the front month puts is sufficient to cover the size of the transaction, although it is difficult to determine when and at what price the spread might have originally been purchased.
The put spread could be a hedge to offset losses on a long position in the shares, or an outright bearish bet that shares in Vale have further to fall this year. The new Sept. $16/$18 spread yields profits ñ or downside protection ñ should shares in Vale decline 6.9% to trade below the breakeven price of $17.31 by expiration.
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